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The Audit Supply Chain Professionals Are Not Doing

Supply chain professionals do lots of supplier audits. They ask about quality standards, IP data protection, manufacturing process certifications, contract review requirements, document control measures, and source of origin of parts and raw materials.

But, surprisingly, they may not be asking how suppliers deal with bribes and corruption issues, according to a recent report from Achilles, a global supplier information management company.

Globally, about a third of large companies surveyed said they issue tenders or contracts without having an anti-bribery and corruption policy for their main suppliers, noted Achilles in a press release. The study, which was commissioned by Achilles and conducted by independent research company IFF, was based on interviews with 300 supply chain professionals from oil, gas, mining, construction, power and utilities, and manufacturing businesses across Brazil, Canada, the Nordics, Spain, the U.K., and the U.S.

Other surprising findings include:

  • A third of companies polled said they do not conduct basic checks to validate suppliers' health and safety or financial reports.
  • Half of the polled businesses claimed that they do not check suppliers' anti-bribery and corruption policies.
  • About one in five large businesses said that they did not conduct any on-site supplier visits to check if the contractors do what they say they do in their health and safety, anti-bribery and corruption and financial documents.

Despite the fact that the theft, fraud and corruption combo is listed as a top-ten global business risk for 2015 on the latest Allianz Risk Barometer and the amount of money spent annually on managing supplier information, many companies, at least in the Achilles sampling, may lack essential systems or resources to track and update this type of data. Some of gaps may also be because companies tend to put greater trust in the suppliers they most frequently use and may not question their anti-corruption policies, the firm noted.

“Large businesses have a responsibility to carry out proper due diligence on their suppliers to protect people working on sites, their own reputation and also the investments of shareholders, who trust them to manage risks,” Adrian Chamberlain, Achilles' chief executive officer said. “We estimate that businesses are spending $60 billion on managing information about suppliers globally, yet this survey shows it isn't working; there are still real gaps in knowledge. It is essential that corporations put in place systems to gather, manage and update supplier information.”

Some recent headlines may renew interest in this auditing area, and not just on the supplier side; some companies may start re-examining how their own internal policies hold up in the face of corruption, fraud and bribes.

For instance, in December, Paul S. Devine, a former global supply manager at Apple, was sentenced to one year in prison for selling company secrets to suppliers, according to the US Attorney's Office in California. Devine, who pleaded guilty to wire fraud, conspiracy and money laundering, will also have to repay $4.5 million, Mashable reported.

Different industry segments, too, face the threat of corruption, fraud and theft more than others. In the transportation sector, theft, fraud and corruption ranked as the number one business risk for 2015, and for the marine and shipping industry it took a number four ranking, according to the Allianz Risk Barometer.          

Is this something your company audits? How does your supply chain group reduce the risk of bribery and corruption?

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